I don't know how it will play out. I just hope somehow combining the two companies will mean that YPN/MSN will attract more advertisers and improve its targeting abilities so Adsense will actually have some competition. It could lower advertising costs if Google realizes they can't randomly charge whatever they want any longer and lowers prices to keep advertisers. That could hurt publishers. Or ad prices could go up since there will be one less place to advertise, and that could help publishers.

But who really knows?

Actually, MSN had sent out invites for contentads [webmasterworld.com] but I don't recall ever hearing much about it again after that. They list contextual ads as an advertising option: [advertising.microsoft.com...] but appear to limit it to their own network:

...you get your ads in front of the right people at the right time—all on quality Microsoft-owned web sites including MSN Money, MSN Entertainment, and FOX Sports.

I would say that if Google gets its foot in the door then there would be a distribution deal in the short-mid term, lots of possible routes but for example within Panama and Adwords campaign settings you might see a new distribution channel checkbox that kind of thing.

If Microsoft then perhaps same kind of thing in the short-mid term but tighter integration would come later and something would get sacrificed. Merging Adcenter and YSM would be difficult and be a rebranding nightmare. YSM has a huge distribution network with lots of premium publishers from the Overture days, Adcenter has very little distribution and hasn't really hit prime time yet.

I could quite see Adcenter getting canned and everything absorbed into a rebranded YSM with both contextual and search products offering far greater reach than ever before. I should imagine thats exactly what Google don't want but its probably what the marketeers and agencies might relish.

But so many possibilities, not least that things will just keep on ticking the way they are maybe for another year as Yahoo have invested big in Panama, they may feel it needs more time to show its steel.